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Issues: Whether tax was deductible at source from compensation paid for acquisition of agricultural land, including the component relatable to interest under Section 28 of the Land Acquisition Act, 1894.
Analysis: The compensation related to acquisition of agricultural land. The governing distinction is between interest under Section 28 of the Land Acquisition Act, 1894, which is treated as an accretion to the value of the acquired land and forms part of enhanced compensation, and interest under Section 34 of that Act, which is interest for delay and does not enjoy the same treatment. Since the amount deducted represented liability arising under Section 28 and the compensation was for agricultural land, the statutory exclusion from tax deduction at source applied. The deduction of tax at source from such compensation was therefore unwarranted.
Conclusion: Tax deduction at source was not permissible on the compensation payable for acquisition of agricultural land, including the amount relatable to Section 28 of the Land Acquisition Act, 1894.
Final Conclusion: The impugned deduction was set aside and the compensation was directed to be paid without TDS.
Ratio Decidendi: Interest under Section 28 of the Land Acquisition Act, 1894 is part of enhanced compensation, whereas interest under Section 34 is not, and compensation for acquisition of agricultural land covered by the statutory exclusion cannot be subjected to tax deduction at source.
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